Use these links to rapidly review the document
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES 20152016
(435) 655-6106(Registrant's telephone number, including area code)ýx NO oýx NO o ýx ýx27, 2015,26, 2016, the registrant had 9,532,4699,215,236 shares of common stock outstanding.
ASSETS Current assets: Cash Accounts receivable, net Inventories Prepaid expenses and other current assets Deferred income taxes Total current assets Property, plant and equipment, net Goodwill Intangible assets, net Other non-current assets Deferred income taxes, net Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses Total current liabilities Long-term debt Other non-current liabilities Total liabilities Stockholders' equity: Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock Total stockholders' equity Total liabilities and stockholders' equity Net sales Cost of sales Gross profit Operating expenses Selling, general and administrative Amortization of intangible assets Income from operations Interest and other expense, net Income before provision for income taxes Provision for income taxes Net income Other comprehensive income (loss) Foreign currency translation adjustment, net of tax Comprehensive income Net income per common share Basic Diluted Weighted average common shares outstanding Basic Dilutive effect of stock options Diluted Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of deferred financing fees Losses on disposals of property, plant and equipment Tax benefit from stock option exercises Deferred income taxes, net Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net Inventories Prepaid expenses and other current assets Other non-current assets Accounts payable Accrued expenses Other non-current liabilities Net cash provided by operating activities Cash flows from investing activities: Acquisitions of businesses Purchases of property, plant and equipment Net cash used in investing activities Cash flows from financing activities: Proceeds from debt Payments on debt Payments of deferred financing fees Proceeds from issuances of common stock Purchases of common stock for treasury Tax benefit from stock option exercises Net cash provided by (used in) financing activities Effect of exchange rate changes on cash Net decrease in cash Cash at beginning of period Cash at end of period 19, 2015. New Accounting Standards Accounts receivable Less allowances Raw materials Work-in-process Finished goods thousands, except per share data) Aggregate assets acquired: Current assets Goodwill Intangible assets Balance as of October 1, 2014 Goodwill attributable to fiscal 2015 acquisition Balance as of June 30, 2015 Intangible assets subject to amortization: Trademarks/tradenames/patents Customer relationships/distribution rights/ non-compete agreements Developed software and technology Intangible assets not subject to amortization: Trademarks/tradenames/licenses Estimated future amortization expense related to the June 30, 2015(1) 2016 2017 2018 2019 Thereafter Long-term debt—revolving credit facility the lenders and compliance with certain covenants and conditions. The lenders under the Credit Agreement continue to be Rabobank International and Wells Fargo. To date, the Company has not experienced any difficulties in accessing the available funds under the Credit Agreement. Deferred financing fees of $420 related to the Credit Agreement are being amortized over the term of the Credit Agreement. Options outstanding and exercisable at September 30, 2014 Exercised Options outstanding and exercisable at June 30, 2015 exercised or expired prior to September 30, 2015. options were anti-dilutive. Net sales attributed to customers in the United States and foreign countries for the three and nine months ended June 30, United States Foreign countries Branded nutritional supplements and other natural products Other(1) adjustments for slow-moving, obsolete and/or damaged inventory may be required, which could have a material impact on the consolidated financial statements. Revenue Recognition—Revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the product has been shipped and the customer takes ownership and assumes the risk of loss; (3) the selling price is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. We believe that these criteria are satisfied upon shipment from our facilities or, in the case of our neighborhood natural food markets and health food stores, at the point of sale within these stores. Revenue is reduced by provisions for estimated customer returns and allowances, which are based on historical averages that have not varied significantly for the periods presented, as well as specific known claims, if any. No other significant deductions from revenue must be estimated at the point in time that revenue is recognized. Net sales Cost of sales Gross profit Selling, general and administrative Amortization of intangible assets Income from operations Interest and other expense, net Income before provision for income taxes Provision for income taxes Net income Adjusted EBITDA(1) Amortization of Intangible Assets. Amortization of intangible assets was Net income Provision for income taxes Interest and other expense, net(1) Depreciation and amortization Adjusted EBITDA 2015. 2015. During the nine months ended June 30, 2016, net borrowings under our revolving credit facility were $14.5 million and primarily related to the acquisition of certain operating assets of Dynamic Health Laboratories, Inc. and Aubrey Organics, Inc. indebtedness or the issuance of additional stock. We believe that borrowings under our current revolving credit facility or a replacement credit facility, together with cash flows from operations, will be sufficient to make required payments under the current credit facility or any such replacement facility, and to make anticipated capital expenditures and fund working capital needs for the next twelve months. Revolving credit facility Interest on revolving credit facility(a) Operating leases Total them; (iii) increased costs, including from increased raw material or energy prices; (iv) changes in general worldwide economic or political conditions; (v) adverse publicity or negative consumer perception regarding nutritional supplements; (vi) issues with obtaining raw materials of adequate quality or quantity; (vii) litigation and claims, including product liability, intellectual property and other types; (viii) disruptions from or following acquisitions including the loss of customers; (ix) increased competition; (x) slow or negative growth in the nutritional supplement industry or the healthy foods channel; (xi) the loss of key personnel or the inability to manage our operations efficiently; (xii) problems with information management systems, manufacturing efficiencies and 2015. 2016. 2016. April 1 - 30, 2015 May 1 - 31, 2015 June 1 - 30, 2015 /s/ CORY J. MCQUEENDescription Page No.Part I.Financial Information Page
Item 1.
Item 2.
Item 3.
Item 4. Part II.
Other Information23
Item 1.Legal Proceedings23
Item 1A.Risk Factors23
Item 1.Item 1A. Item 2.
Item 6. Exhibits24 June 30,
2015 September 30,
2014(1) $ 4,902 $ 6,232 14,186 15,118 59,318 57,914 2,774 3,364 1,245 1,222 82,425 83,850
78,350
79,244 24,384 23,622 20,108 21,965 1,692 1,203 3,946 4,894 $ 210,905 $ 214,778 $ 14,218 $ 14,874 5,852 6,835 20,070 21,709
32,000
43,000 171 456 52,241 65,165 96 97 8,488 11,112 150,244 138,347 (139 ) 79 (25 ) (22 ) 158,664 149,613 $ 210,905 $ 214,778 (1)The condensed consolidated balance sheet as of September 30, 2014 has been prepared using information from the audited financial statements at that date. June 30,
2016
2015 (1)ASSETS Current assets: Cash $ 3,573 $ 4,615 Accounts receivable, net 20,577 16,798 Inventories 63,945 59,440 Prepaid expenses and other current assets 3,413 4,195 Deferred income taxes 1,233 1,167 Total current assets 92,741 86,215 Property, plant and equipment, net 83,399 77,645 Goodwill 30,925 24,384 Intangible assets, net 23,190 17,605 Deferred income taxes 4,758 4,932 Other non-current assets 1,582 1,668 Total assets $ 236,595 $ 212,449 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,098 $ 14,023 Accrued expenses 7,117 6,505 Total current liabilities 21,215 20,528 Long-term debt 46,000 31,500 Other non-current liabilities 192 174 Total liabilities 67,407 52,202 Stockholders' equity: Common stock 93 95 Additional paid-in capital 1,250 6,961 Retained earnings 168,506 153,618 Accumulated other comprehensive income (514 ) (379 ) Treasury stock (147 ) (48 ) Total stockholders' equity 169,188 160,247 Total liabilities and stockholders' equity $ 236,595 $ 212,449 (1) The condensed consolidated balance sheet as of September 30, 2015 has been prepared using information from the audited financial statements at that date. Three months ended
June 30, Nine months ended June 30, Three Months Ended
June 30, Nine Months Ended
June 30, 2015 2014 2015 2014 2016 2015 2016 2015 $ 54,382 $ 55,625 $ 162,830 $ 162,034 $ 60,836 $ 54,382 $ 176,287 $ 162,830 27,955 28,473 83,293 81,660 29,416 27,955 86,430 83,293 26,427 27,152 79,537 80,374 31,420 26,427 89,857 79,537 19,061 19,762 58,404 57,625 21,895 19,061 64,016 58,404 729 704 2,189 1,940 988 729 2,968 2,189 6,637 6,686 18,944 20,809 8,537 6,637 22,873 18,944 257 356 827 1,024 326 257 922 827 6,380 6,330 18,117 19,785 8,211 6,380 21,951 18,117 1,930 2,333 6,220 7,329 2,182 1,930 7,063 6,220 $ 4,450 $ 3,997 $ 11,897 $ 12,456 $ 6,029 $ 4,450 $ 14,888 $ 11,897
Other comprehensive income (loss): 112 1 (218 ) 49 (118 ) 112 (135 ) (218 ) $ 4,562 $ 3,998 $ 11,679 $ 12,505 $ 5,911 $ 4,562 $ 14,753 $ 11,679 $ 0.47 $ 0.41 $ 1.24 $ 1.27 $ 0.65 $ 0.47 $ 1.59 $ 1.24 0.47 0.41 1.24 1.27 0.65 0.47 1.59 1.24
9,561,008 9,798,393 9,612,171 9,826,516 9,310,097 9,561,008 9,390,765 9,612,171 2,991 8,400 4,920 9,150 — 2,991 — 4,920 9,563,999 9,806,793 9,617,091 9,835,666 9,310,097 9,563,999 9,390,765 9,617,091 Nine months ended
June 30, Nine Months Ended
June 30, 2015 2014 2016 2015 $ 11,897 $ 12,456 $ 14,888 $ 11,897 9,702 8,357 10,599 9,702 99 138 94 99 9 2 9 9 (55 ) (51 ) — (55 ) 925 289 Deferred income taxes 108 925 964 (377 ) (2,439 ) 964 (1,340 ) (4,601 ) (1,683 ) (1,340 ) 605 (484 ) 1,196 605 (107 ) (114 ) (91 ) (107 ) (761 ) (197 ) (277 ) (761 ) (774 ) 705 1,037 (774 ) 19 2 18 19 21,183 16,125 23,459 21,183 Purchases of property, plant and equipment (6,394 ) (6,523 ) (1,266 ) (16,211 ) (26,235 ) (1,266 ) (6,523 ) (8,577 ) (7,789 ) (24,788 ) (32,629 ) (7,789 ) 2,500 19,500 27,000 2,500 (13,500 ) (10,500 ) (12,500 ) (13,500 ) (420 ) — — (420 ) 432 193 60 432 (3,618 ) (3,798 ) (6,428 ) (3,618 ) 55 51 — 55 (14,551 ) 5,446 8,132 (14,551 ) (173 ) 33 (4 ) (173 ) (1,330 ) (3,184 ) (1,042 ) (1,330 ) 6,232 8,235 4,615 6,232 $ 4,902 $ 5,051 $ 3,573 $ 4,902 BioGenesisBioGenesis™™,Life-flo®,Organix South®,Heritage Store® andMonarch NutraceuticalsNutraceuticals™™.CompanyCompany™™,Thom's Natural FoodsFoods™™,Cornucopia Community Market™ andGranola'sGranola's™™. The Company also owns health food stores, which operate under various trade names, includingFresh VitaminsVitamins™™ andPeachtree Natural Foods®.2015,2016, the results of its operations for the three and nine months ended June 30, 20152016 and 20142015 and its cash flows for the nine months ended June 30, 20152016 and 2014,2015, in conformity with accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information applied on a consistent basis. Results for the three and nine months ended June 30, 20152016 are not necessarily indicative of the results to be expected for the full fiscal year.2014,2015, which was filed with the Securities and Exchange Commission on November 20, 2014.NUTRACEUTICAL INTERNATIONAL CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)(unaudited)(dollars in thousands, except per share data)1. BASIS OF PRESENTATION (Continued)May 2014,February 2016, the Financial Accounting Standards Board ("FASB") issued authoritative guidance, which is included in Accounting Standards Codification ("ASC") 842, "Leases." This guidance requires lessees to recognize most leases on the balance sheet by recording a right-of-use asset and a lease liability. This guidance is effective June 30,
2015 September 30,
2014 June 30,
2016 September 30,
2015 $ 15,259 $ 16,352 $ 21,608 $ 17,882 (1,073 ) (1,234 ) (1,031 ) (1,084 ) $ 14,186 $ 15,118 $ 20,577 $ 16,798 3. INVENTORIES Inventories were comprised of the following: June 30,
2015 September 30,
2014 $ 22,485 $ 20,559 8,668 6,909 28,165 30,446 $ 59,318 $ 57,914 (Continued) June 30,
2016 September 30,
2015Raw materials $ 27,665 $ 23,106 Work-in-process 12,021 9,755 Finished goods 24,259 26,579 $ 63,945 $ 59,440 Duringnine months ended June 30, 2014,Company's business strategy of consolidating the Company made sixfragmented industry in which it competes. These acquisitions were accounted for using the acquisition method of businesses. On October 16, 2013,accounting. Accordingly, the Company acquired certain operating assets of TCCD International, Inc. On November 25, 2013, the Company acquired certain operating assets of Green Luxury Brands, Inc. On December 19, 2013, the Company acquired certain operating assets of Twinlab Corporation. On January 15, 2014, the Company acquired certain operating assets of Peachtree Natural Foods, Inc. On April 11, 2014, the Company acquired certain operating assets of Northwest Health Foods, Inc. On April 17, 2014, the Company acquired certain operating assets of Bio-Genesis Nutraceuticals, Inc. The aggregate purchase price was assigned to the assets acquired based on their fair values at their respective dates of acquisition. The excess of purchase price over the fair values of the assets acquired was classified as goodwill. The goodwill relates to expected synergies from these acquisitions. The following reflects the preliminary allocation of the purchase prices for the fiscal 2016 acquisitions was $16,211and the final allocation of the purchase prices for the fiscal 2015 acquisitions to the assets acquired: Fiscal 2016 Acquisition - Dynamic Health Fiscal 2016 Acquisition - Aubrey Organics Fiscal 2015 Acquisitions Assets acquired: Current assets $ 3,821 $ 755 $ 111 Property, plant and equipment 644 6,004 — Goodwill 6,541 — 762 Intangible assets 8,020 450 393 $ 19,026 $ 7,209 $ 1,266 cash. These acquisitions arekeeping with the Company's business strategyCondensed Consolidated Statements of consolidatingComprehensive Income for the fragmented industry in which it competes. These acquisitions were accountednine months ended June 30, 2016. The Company tracks selling, general and administrative expenses on a consolidated basis, not on a brand-by-brand basis. As a result, the disclosure of any results after gross profit is impracticable. The following table provides unaudited pro forma information for usingthe three and nine months ended June 30, 2015, as if the acquisition method of accounting. Accordingly,Dynamic Health had been completed on October 1, 2014. Pro forma information was not provided for the aggregate purchase pricethree and nine months ended June 30, 2016 since the acquisition was assignedcompleted near the beginning of these periods and the pro forma results are not materially different than actual results. The information has been provided for illustrative purposes only and is not necessarily indicative of the actual results that would have been achieved by the Company for the periods presented or that will be achieved in the future. The pro forma information has been adjusted to give effect to items directly attributable to the assets acquired based on their fair values at their respective dates ofDynamic Health acquisition. The excess of aggregate purchase price over the fair values of the assets acquired was classified as goodwill. The goodwill relates to expected synergies from these acquisitions. The following reflects the final allocation of the aggregate purchase price for these acquisitions to the aggregate assets acquired: Fiscal 2015
Acquisitions Fiscal 2014
Acquisitions $ 111 $ 2,733 762 7,675 393 5,803 $ 1,266 $ 16,211 The fiscal 2015 and fiscal 2014These adjustments include acquisition costs, amortization expense associated with acquired intangible assets, totaling $393interest expense associated with borrowings on the Company's revolving credit facility to fund the acquisition, application of the Company's depreciable lives policy for property, plant and $5,803, respectively,equipment, elimination of intercompany transactions and any consequential tax effects. Three Months Ended
June 30, 2015 Nine Months Ended
June 30, 2015Net sales $ 58,708 $ 176,299 Net income $ 4,392 $ 11,972 trademarks, tradenames and customer relationships, and are being amortized over periods of two to twelve years for financial statement purposes. The fiscal 2015 and fiscal 2014 acquired intangible assets are expected to be deductible for tax purposes over fifteen years. Goodwill, which isthe Aubrey Organics acquisition were not subject to amortization for financial statement purposes, of $762 for fiscal 2015 and $7,675 for fiscal 2014, is expected to be deductible for tax purposes over fifteen years.material.NUTRACEUTICAL INTERNATIONAL CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)(unaudited)(dollars in thousands, except per share data)20142015 to June 30, 20152016 was as follows: Goodwill Accumulated
Impairment Net $ 64,016 $ (40,394 ) $ 23,622
762
—
762 64,778 (40,394 ) 24,384 Goodwill Net Balance as of September 30, 2015 $ 64,778 $ (40,394 ) $ 24,384 Goodwill attributable to fiscal 2016 acquisitions 6,541 — 6,541 Balance as of June 30, 2016 $ 71,319 $ (40,394 ) $ 30,925 20152016 and September 30, 20142015 were as follows: June 30, 2015 September 30, 2014 Gross
Carrying
Amount(1) Accumulated
Amortization(1) Net
Carrying
Amount Gross
Carrying
Amount(1) Accumulated
Amortization(1) Net
Carrying
Amount Weighted-
Average
Amortization
Period (Years) $ 5,530 $ (1,842 ) $ 3,688 $ 5,418 $ (1,480 ) $ 3,938 11 16,837 (9,217 ) 7,620 16,517 (7,390 ) 9,127 7 772 (772 ) — 772 (772 ) — 5 23,139 (11,831 ) 11,308 22,707 (9,642 ) 13,065
8,800 — 8,800 8,900 — 8,900 $ 31,939 $ (11,831 ) $ 20,108 $ 31,607 $ (9,642 ) $ 21,965 June 30, 2016 September 30, 2015 Intangible assets subject to amortization: Trademarks/tradenames/licenses $ 13,923 $ (2,895 ) $ 11,028 $ 12,470 $ (1,966 ) $ 10,504 11 Customer relationships/non-compete agreements 23,867 (11,705 ) 12,162 16,836 (9,773 ) 7,063 7 Developed software and technology 772 (772 ) — 772 (772 ) — 5 38,562 (15,372 ) 23,190 30,078 (12,511 ) 17,567 Intangible assets not subject to amortization: Licenses — — — 38 — 38 $ 38,562 $ (15,372 ) $ 23,190 $ 30,116 $ (12,511 ) $ 17,605 NUTRACEUTICAL INTERNATIONAL CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)(unaudited)(dollars in thousands, except per share data)5. GOODWILL AND INTANGIBLE ASSETS (Continued)20152016 net carrying amount of $11,308$23,190 for intangible assets subject to amortization is as follows: Estimated
Amortization
Expense $ 679 2,227 1,852 1,662 1,235 3,653 $ 11,308 (1)Estimated amortization expense for the year ending September 30, 2015 includes only amortization to be recorded after June 30, 2015.Year Ending September 30, 2016(1) $ 959 2017 3,588 2018 3,398 2019 2,970 2020 2,881 Thereafter 9,394 $ 23,190 (1) Estimated amortization expense for the year ending September 30, 2016 includes only amortization to be recorded after June 30, 2016. continue to impact retail and consumer demand, as well as the market price of the Company's common stock, and could negatively impact the Company's future operating performance, cash flow and/or stock price and could result in additional goodwill and/or intangible asset impairment charges being recorded in future periods. Also, the Company periodically reviews its brands to achieve marketing, sales and operational synergies. These reviews could result in brands being consolidated or discontinued and could result in intangible asset impairment charges being recorded in future periods. Such goodwillGoodwill and/or intangible asset impairment charges could materially impact the Company's consolidated financial statements. The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity. June 30,
2015 September 30,
2014 $ 32,000 $ 43,000 June 30,
2016 September 30,
2015Long-term debt—revolving credit facility $ 46,000 $ 31,500 20152016 and September 30, 2014.2015. Estimated fair values for debt have been determined based on borrowing rates currently available to the Company for bank loans with similar terms and maturities and are classified as Level 2 (significant observable inputs other than quoted prices) in the FASB's fair value hierarchy.NUTRACEUTICAL INTERNATIONAL CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)(unaudited)(dollars in thousands, except per share data)6. DEBT (Continued)2015,2016, the Company had outstanding revolving credit borrowings of $32,000$46,000 under the Credit Agreement. Borrowings under the Credit Agreement are collateralized by substantially all assets of the Company. At the Company's election, borrowings bear interest at the applicable Eurodollar Rate plus a variable margin or at a Base Rate plus a variable margin. Base Rate is the higher of: (i) the Prime Lending Rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the one-month Eurodollar Rate multiplied by the Statutory Reserve Rate plus 1.0% (capitalized terms are defined in the Credit Agreement, a copy of which was filed with the Securities and Exchange Commission on November 5, 2014). At June 30, 2015,2016, the applicable weighted-average interest rate for outstanding borrowings was 1.78%2.13%. The Company is also required to pay a variable quarterly fee on the unused balance under the Credit Agreement. At June 30, 2015,2016, the applicable rate was 0.25%. Accrued interest on Eurodollar Rate borrowings is payable based on elected intervals of one, two or three months. Accrued interest on Base Rate borrowings is payable quarterly. The Credit Agreement matures on November 4, 2019, and the Company is required to repay all principal and interest outstanding under the Credit Agreement on such date.2015,2016, the Company was in compliance with the restrictive covenants. Upon the occurrence of a default, the lender has various remedies or rights, which may include proceeding against the collateral or requiring the Company to repay all amounts outstanding under the Credit Agreement.During the three and nine months ended June 30, 2014, the Company purchased 99,541 and 156,661 shares of common stock for an aggregate price of $2,368 and $3,798, respectively. All of these shares of common stock held in treasury were retired prior to June 30 in the respective quarter of purchase, except at June 30, 20152016 and 2014,2015, the Company held 1,0006,211 and 9,6731,000 shares of common stock in treasury, respectively.treasury. As of June 30, 2015,2016, the Company was permitted to purchase up to 551,723215,800 additional shares under its approved purchase plan, with no expiration date or restrictions. The Company accounts for treasury shares using the cost method.NUTRACEUTICAL INTERNATIONAL CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)(unaudited)(dollars in thousands, except per share data) The following table summarizes stock option activity during the nine months ended2015: Number of
Options Weighted-Average
Exercise
Price 32,500 $ 14.22 (25,000 ) 14.22 7,500 14.22 All stock options2016, the Company had no outstanding at June 30, 2015 expire on September 30, 2015. No options to purchase shares of common stock, for the three and nine months ended June 30, 2015 and 2014 were excluded from the computation of diluted earnings per share because none of the stockas all previously issued options were anti-dilutive. During2014,2015 were excluded from the Company received proceedscomputation of $115 related todiluted earnings per share because none of the exercise of stock options. During this same period, the Company recorded a tax benefit of $51 and optionees realized an aggregate pre-tax gain of $133 from these stock option exercises.20142015 and fiscal 20132014 incentive compensation (bonus) payments, 24,82722,664 and 31,78824,827 shares of the Company's common stock were issued, respectively. These non-cash stock awards were granted on December 11, 20142015 and December 11, 20132014 at an aggregate fair value of $504$556 and $775,$504, respectively, with fair value being determined by the closing price of the Company's common stock on the grant date. These stock awards were registered, unrestricted and fully vested on the grant date. As of June 30, 2015, 743,3852016, 720,721 shares of the Company's common stock were available for issuance under the 2013 Plan. (Continued)9. SEGMENTS (Continued)20152016 and 20142015 were as follows: Three months ended
June 30, Nine months ended
June 30, Three Months Ended
June 30, Nine Months Ended
June 30, 2015 2014 2015 2014 2016 2015 2016 2015 $ 47,671 $ 47,804 $ 143,203 $ 140,089 $ 51,454 $ 47,671 $ 153,854 $ 143,203 6,711 7,821 19,627 21,945 9,382 6,711 22,433 19,627 $ 54,382 $ 55,625 $ 162,830 $ 162,034 $ 60,836 $ 54,382 $ 176,287 $ 162,830 20152016 and 20142015 were as follows: Three months ended
June 30, Nine months ended
June 30, 2015 2014 2015 2014 $ 49,258 $ 50,161 $ 147,018 $ 146,636 5,124 5,464 15,812 15,398 $ 54,382 $ 55,625 $ 162,830 $ 162,034 (1) Three Months Ended
June 30, Nine Months Ended
June 30, 2016 2015 2016 2015 Branded nutritional supplements and other natural products $ 55,342 $ 48,520 $ 159,520 $ 144,710 Other(1) 5,494 5,862 16,767 18,120 $ 60,836 $ 54,382 $ 176,287 $ 162,830 (1) Net sales for any other product or group of similar products are less than 10% of consolidated net sales. or group that were previously included in the branded nutritional supplements and other natural products group. As a result of similar products are less than 10%this decision, the other product group net sales amount for the three and nine months ended June 30, 2015 has been increased by $738 and $2,308, respectively, from the prior year's presentation.consolidated net sales.Directors approved the addition of 1,000,000 shares to the Company's previously approved share purchase program. As of July 26, 2016, the Company was authorized to buy up to 1,183,170 total shares of its outstanding common stock.BioGenesisBioGenesis™™,Life-flo®,Organix South®,Heritage Store® andMonarch NutraceuticalsNutraceuticals™™.CompanyCompany™™,Thom's Natural FoodsFoods™™,Cornucopia Community Market™ andGranola'sGranola's™™. We also own health food stores, which operate under various trade names, includingFresh VitaminsVitamins™™ andPeachtree Natural Foods®.while intangible assets with indefinite useful lives are not amortized. Amortizable intangible assetsand are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill and indefinite-lived intangible assets areis tested annually for impairment and when events or changes in circumstances indicate the carrying value may not be recoverable. The appropriateness of the indefinite-life classification of non-amortizable intangible assets is also reviewed as part of the annual testing or when circumstances warrant a change to a finite life. We perform our annual impairment testing as of September 30 each year, which is the last day of our fiscal year. Intangible assets with indefinite useful lives are tested for impairment at the individual tradename level by comparing the fair value of the indefinite-lived intangible asset to its carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment charge is recognized. Fair values of indefinite-lived intangible assets are estimated using discounted cash flow models. continue to impact retail and consumer demand, as well as the market price of our common stock, and could negatively impact our future operating performance, cash flow and/or stock price and could result in additional goodwill and/or intangible asset impairment charges being recorded in future periods. Also, we periodically review our brands to achieve marketing, sales and operational synergies. These reviews could result in additional brands being consolidated or discontinued and could result in additional intangible asset impairment charges being recorded in future periods. Such goodwill and/or intangible asset impairment charges could materially impact our consolidated financial statements. The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity. Three Months
Ended June 30, Nine Months
Ended June 30, 2015 2014 2015 2014 100.0 % 100.0 % 100.0 % 100.0 % 51.4 % 51.2 % 51.2 % 50.4 % 48.6 % 48.8 % 48.8 % 49.6 % 35.1 % 35.5 % 35.9 % 35.6 % 1.3 % 1.3 % 1.3 % 1.2 % 12.2 % 12.0 % 11.6 % 12.8 % 0.4 % 0.6 % 0.5 % 0.6 % 11.8 % 11.4 % 11.1 % 12.2 % 3.6 % 4.2 % 3.8 % 4.5 % 8.2 % 7.2 % 7.3 % 7.7 % 18.1 % 17.3 % 17.6 % 18.0 % Three Months Ended
June 30, Nine Months Ended
June 30, 2016 2015 2016 2015 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 48.4 % 51.4 % 49.0 % 51.2 % Gross profit 51.6 % 48.6 % 51.0 % 48.8 % Selling, general and administrative 36.0 % 35.1 % 36.3 % 35.9 % Amortization of intangible assets 1.6 % 1.3 % 1.7 % 1.3 % Income from operations 14.0 % 12.2 % 13.0 % 11.6 % Interest and other expense, net 0.5 % 0.4 % 0.6 % 0.5 % Income before provision for income taxes 13.5 % 11.8 % 12.4 % 11.1 % Provision for income taxes 3.6 % 3.6 % 4.0 % 3.8 % Net income 9.9 % 8.2 % 8.4 % 7.3 % Adjusted EBITDA(1) 19.9 % 18.1 % 19.0 % 17.6 % 20152016 to the Three Months Ended June 30, 20142015decreasedincreased by $1.2$6.4 million, or 2.2%11.9%, to $60.8 million for the three months ended June 30, 2016 (the "third quarter of fiscal 2016") from $54.4 million for the three months ended June 30, 2015 (the "third quarter of fiscal 2015") from $55.6 million for the three months ended June 30, 2014 (the "third quarter of fiscal 2014"). Net sales of branded nutritional supplements and other natural products decreased by $0.8 million, or 1.8%, to $49.3 million for the third quarter of fiscal 2015, compared to $50.1 million for the third quarter of fiscal 2014. The decrease in net sales of branded nutritional supplements and other natural products was primarily related to a decrease in sales volume of branded products to certain customers, partially offset by price increases of $1.9 million and, to a lesser extent, the net sales contributions of the fiscal 2014 and fiscal 2015 acquisitions. Other netsales were $5.1 million for the third quarter of fiscal 2015 and $5.5 million for the third quarter of fiscal 2014. Gross Profit. Gross profit decreased by $0.8 million, or 2.7%, to $26.4 million for the third quarter of fiscal 2015 from $27.2 million for the third quarter of fiscal 2014. This decrease in gross profit was primarily related to the decrease in net sales. As a percentage of net sales, gross profit was 48.6% for the third quarter of fiscal 2015 and 48.8% for the third quarter of fiscal 2014. Selling, General and Administrative. Selling, general and administrative expenses decreased by $0.7 million, or 3.5%, to $19.1 million for the third quarter of fiscal 2015 from $19.8 million for the third quarter of fiscal 2014. As a percentage of net sales, selling, general and administrative expenses decreased to 35.1% for the third quarter of fiscal 2015 from 35.5% for the third quarter of fiscal 2014. This decrease in selling, general and administrative expenses was primarily attributable to year-over-year cost improvements in many selling, general and administrative expense areas. Amortization of Intangible Assets. Amortization of intangible assets was $0.7 million for both the third quarter of fiscal 2015 and the third quarter of fiscal 2014. For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions. Interest and Other Expense, Net. Net interest and other expense was $0.3 million for the third quarter of fiscal 2015 and $0.4 million for the third quarter of fiscal 2014 and primarily consisted of interest expense on indebtedness under our revolving credit facility. Provision for Income Taxes. Our effective tax rate was 30.3% for the third quarter of fiscal 2015 and 36.9% for the third quarter of fiscal 2014. The decrease in the effective tax rate was primarily related to a decrease in the valuation allowance for foreign tax credits of $0.3 million.Comparison of the Nine Months Ended June 30, 2015 to the Nine Months Ended June 30, 2014 Net Sales. Net sales increased by $0.8 million, or 0.5%, to $162.8 million for the nine months ended June 30, 2015 from $162.0 million for the nine months ended June 30, 2014. Net sales of branded nutritional supplements and other natural products increased by $0.4$6.8 million, or 0.3%14.1%, to $147.0$55.3 million for the nine months ended June 30, 2015 from $146.6third quarter of fiscal 2016, compared to $48.5 million for the nine months ended June 30, 2014.third quarter of fiscal 2015. The increase in net sales of branded nutritional supplements and other natural products was primarily related to the net sales contributions of the fiscal 20142015 and fiscal 20152016 acquisitions and, to a lesser extent, price increases of $2.7$0.9 million, partially offset by a slight decrease in sales volume of branded products to certain customers. Other net sales were $15.8$5.5 million for the nine months ended June 30, 2015third quarter of fiscal 2016 and $15.4$5.9 million for the nine months ended June 30, 2014.third quarter of fiscal 2015.decreasedincreased by $0.9$5.0 million, or 1.0%18.9%, to $79.5$31.4 million for the nine months ended June 30, 2015third quarter of fiscal 2016 from $80.4$26.4 million for the nine months ended June 30, 2014.third quarter of fiscal 2015. As a percentage of net sales, gross profit decreasedincreased to 48.8%51.6% for the nine months ended June 30, 2015third quarter of fiscal 2016 from 49.6%48.6% for the nine months ended June 30, 2014.third quarter of fiscal 2015. This decreaseincrease in gross profit was primarily related to an increase in manufacturing overhead costs, partially offset by the increase in net sales.sales and, to a lesser extent, a decrease in certain manufacturing overhead costs.$0.8$2.8 million, or 1.4%14.9%, to $58.4$21.9 million for the nine months ended June 30, 2015third quarter of fiscal 2016 from $57.6$19.1 million for the nine months ended June 30, 2014.third quarter of fiscal 2015. As a percentage of net sales, selling, general and administrative expenses increased to 35.9%36.0% for the nine months ended June 30, 2015,third quarter of fiscal 2016, compared to 35.6%35.1% for the nine months ended June 30, 2014.third quarter of fiscal 2015. This increase in selling, general and administrative expenses was primarily attributable to operational and transition costs related to the fiscal 20142015 and fiscal 2016 acquisitions partially offset by year-over-year cost improvementsas well as an increase in many selling, general andcertain administrative expense areas.costs.$2.2$1.0 million for third quarter of fiscal 2016 and $0.7 million for the nine months ended June 30, 2015 and $1.9 million for the nine months ended June 30, 2014.third quarter of fiscal 2015. For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.$0.8$0.3 million for both the nine months ended June 30,third quarter of fiscal 2016 and fiscal 2015 and $1.0 million for the nine months ended June 30, 2014 and primarily consisted of interest expense on indebtedness under our revolving credit facility.34.3%26.6% for the third quarter of fiscal 2016 and 30.3% for the third quarter of fiscal 2015. The decrease in the effective tax rate was primarily due to increases in the domestic manufacturing deduction and the credit for increasing research activities.37.0%primarily consisted of interest expense on indebtedness under our revolving credit facility.2014.2016 and 34.3% for the nine months ended June 30, 2015. The decrease in the effective tax rate was primarily relateddue to a decreaseincreases in the valuation allowancedomestic manufacturing deduction and the credit for foreign tax credits of $0.3 million.increasing research activities.••••Analysts—who estimate our projected Adjusted EBITDA and other EBITDA-based metrics in their independently-developed financial models for investors;•Creditors—who evaluate our operating performance based on compliance with certain EBITDA-based debt covenants;•Investment Bankers—who use EBITDA-based metrics in their written evaluations and comparisons of companies within our industry; and•Board of Directors and Executive Management—who use EBITDA-based metrics for evaluating management performance relative to our operating budget and bank covenant compliance, as well as our ability to service debt and raise capital for growth opportunities, including acquisitions, which are a critical component of our stated strategy. Generally, we have recorded a monthly accrual for incentive compensation as a percentage of Adjusted EBITDA, which has been paid out to executive management, as well as other employees, upon completion of our annual audit.▪ ▪ ▪ ▪ Three Months
Ended June 30, Nine Months Ended
June 30, 2015 2014 2015 2014 (dollars in thousands) $ 4,450 $ 3,997 $ 11,897 $ 12,456 1,930 2,333 6,220 7,329 257 356 827 1,024 3,195 2,942 9,702 8,357 $ 9,832 $ 9,628 $ 28,646 $ 29,166 (1)Includes amortization of deferred financing fees. Three Months Ended
June 30, Nine Months Ended
June 30, 2016 2015 2016 2015 (dollars in thousands) Net income $ 6,029 $ 4,450 $ 14,888 $ 11,897 Provision for income taxes 2,182 1,930 7,063 6,220 Interest and other expense, net(1) 326 257 922 827 Depreciation and amortization 3,579 3,195 10,599 9,702 Adjusted EBITDA $ 12,116 $ 9,832 $ 33,472 $ 28,646 (1) Includes amortization of deferred financing fees. 2015 from $9.6 million for the third quarter of fiscal 2014.2015. Adjusted EBITDA as a percentage of net sales increased to 19.9% for the third quarter of fiscal 2016 from 18.1% for the third quarter of fiscal 2015 from 17.3% for the third quarter of fiscal 2014.decreasedincreased to $33.5 million for the nine months ended June 30, 2016 from $28.6 million for the nine months ended June 30, 2015 from $29.2 million for the nine months ended June 30, 2014.2015. Adjusted EBITDA as a percentage of net sales decreasedincreased to 19.0% for the nine months ended June 30, 2016 from 17.6% for the nine months ended June 30, 2015 from 18.0% for the nine months ended June 30, 2014.productsproduct sales volume during the second fiscal quarter (January through March) due to increased interest in health-related products among consumers following the holiday season.$62.4$71.5 million as of June 30, 2015,2016, compared to $62.1$65.7 million as of September 30, 2014.2015. The increase in working capital was primarily the result of an increaseincreases in inventoriesaccounts receivable and a decrease in accrued expenses,inventories, partially offset by a decrease in cash.20152016 was $21.2$23.5 million, compared to $16.1$21.2 million for the comparable period in fiscal 2014.2015. This increase in net cash provided by operating activities for the nine months ended June 30, 20152016 was primarily attributable to an increase in net income as well as changes in operating assets and liabilities.$7.8$32.6 million for the nine months ended June 30, 2015,2016, compared to $24.8$7.8 million for the comparable period in fiscal 2014.2015. Our investing activities consisted of acquisitions of businesses and capital expenditures. The capital expenditures primarily related to buildings, building improvements, distribution and manufacturing equipment and information systems. DuringNet cash provided by financing activities was $8.1 million for the nine months ended June 30, 2014, we made six acquisitions of businesses. On October 16, 2013, we acquired certain operating assets of TCCD International, Inc. On November 25, 2013, we acquired certain operating assets of Green Luxury Brands, Inc. On December 19, 2013, we acquired certain operating assets of Twinlab Corporation. On January 15, 2014, we acquired certain operating assets of Peachtree Natural Foods, Inc. On April 11, 2014, we acquired certain operating assets of Northwest Health Foods, Inc. On April 17, 2014, we acquired certain operating assets of Bio-Genesis Nutraceuticals, Inc. The aggregate purchase price of these acquisitions was $16.2 million in cash. Net2016 and net cash used in financing activities was $14.6 million for the nine months ended June 30, 2015 and net cash provided by financing activities was $5.4 million for the comparable period in fiscal 2014.2015. During these periods, financing activities primarily related to borrowings and repayments under our revolving credit facility, payments of deferred financing fees, purchases of common stock for treasury and proceeds from the issuance of common stock related to stock option exercises and the direct stock purchase plan.3,7452,479 shares purchased during the nine months ended June 30, 2015.2016. As of June 30, 2015,2016, there were 1,377,9901,374,965 shares of common stock available for purchase.resetsincreases the available credit borrowings to $100.0 million with no automatic reductions and provides an accordion feature that can increase the available credit borrowings to $130.0 million, subject to approval by the lenders and compliance with certain covenants and conditions. The lenders under the Credit Agreement continue to be Rabobank International and Wells Fargo. To date, we have not experienced any difficulties in accessing the available funds under the Credit Agreement. Deferred financing fees of $0.4 million related to the Credit Agreement are being amortized over the term of the Credit Agreement.2015,2016, we had outstanding revolving credit borrowings of $32.0$46.0 million under the Credit Agreement. Borrowings under the Credit Agreement are collateralized by substantially all of our assets. At our election, borrowings bear interest at the applicable Eurodollar Rate plus a variable margin or at a Base Rate plus a variable margin. Base Rate is the higher of: (i) the Prime Lending Rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the one-month Eurodollar Rate multiplied by the Statutory Reserve Rate plus 1.0% (capitalized terms are defined in the Credit Agreement, a copy of which was filed with the Securities and Exchange Commission on November 5, 2014). At June 30, 2015,2016, the applicable weighted-average interest rate for outstanding borrowings was 1.78%2.13%. We are also required to pay a quarterly fee on the unused balance under the Credit Agreement. At June 30, 2015,2016, the applicable rate was 0.25%. Accrued interest on Eurodollar Rate borrowings is payable based on2015,2016, we were in compliance with the restrictive covenants. Upon the occurrence of a default, the lender has various remedies or rights, which may include proceeding against the collateral or requiring us to repay all amounts outstanding under the Credit Agreement.20152016 were as follows: Payments Due By Period Total Less Than
1 Year 1 - 3 Years 4 - 5 Years After
5 Years (dollars in thousands) $ 32,000 $ — $ — $ 32,000 $ — 3,349 770 1,539 1,040 — 6,534 3,780 2,509 245 — $ 41,883 $ 4,550 $ 4,048 $ 33,285 $ — (a)Represents estimated interest obligations associated with our outstanding revolving credit facility balance of $32.0 million at June 30, 2015, assuming no principal payments are made before maturity, a weighted-average interest rate of 1.78% and an underutilization fee rate of 0.25%. Payments Due By Period Contractual Obligations and Other Commitments Total 1 - 3 Years 4 - 5 Years (dollars in thousands) Revolving credit facility $ 46,000 $ — $ — $ 46,000 $ — Interest on revolving credit facility(a) 3,836 1,146 2,291 399 — Operating leases 6,168 3,899 1,993 276 — Total $ 56,004 $ 5,045 $ 4,284 $ 46,675 $ — (a) Represents estimated interest obligations associated with our outstanding revolving credit facility balance of $46.0 million at June 30, 2016, assuming no principal payments are made before maturity, a weighted-average interest rate of 2.13% and an underutilization fee rate of 0.25%. 2015,2016, we had no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material effect on our consolidated financial statements.same;same including adverse determinations by regulators; (ii) unavailability of desirable acquisitions, inability to complete them or inability to integrateoperations;operations, including system interruptions and security/cybersecurity breaches; (xiii) insurance coverage issues; (xiv) the volatility of the stock market generally and of our stock specifically; (xv) increases in the cost of borrowings or unavailability of additional debt or equity capital, or both, or fluctuations in foreign currencies; and (xvi) interruption of business or negative impact on sales and earnings due to acts of God, acts of war, terrorism, bio-terrorism, civil unrest and other factors outside of our control.2015,2016, the applicable weighted-average interest rate for borrowings was 1.78%2.13% and we had total borrowings outstanding of $32.0$46.0 million. A hypothetical 100 basis point change in interest rates would not have had a material impact on our reported net income or cash flows for the nine months ended June 30, 20152016 and 2014.2015.2016. Based on2015.20142015 Annual Report on Form 10-K.2015.2015,2016, our Board of Directors approved a share purchase program authorizing us to buy up to 4,500,000 shares of our common stock. As of June 30, 2015,2016, there were 551,723215,800 shares available for purchase under this program. The shares available for purchase under this program have no expiration date. Purchases under this program during the three months ended June 30, 20152016 occurred in April, May and June as follows: Total Number
of Shares
Purchased Average Price
Paid Per
Share Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plan Maximum
Number of
Shares that
May Yet Be
Purchased Under
the Plan 40,302 $ 19.83 40,302 21,874 20.09 21,874 1,100 24.74 1,100 63,276 20.00 63,276 551,723 Period April 1-30, 2016 31,241 $ 24.66 31,241 May 1-31, 2016 47,201 23.49 47,201 June 1-30, 2016 41,079 23.92 41,079 119,521 23.94 119,521 215,800 31.1 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document(1)
101.SCH
XBRL Taxonomy Extension Schema Document(1)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document(1)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document(1)
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document(1)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document(1)(1)Filed herewith.(1) Filed herewith. Date: July 28, 2016 By: NUTRACEUTICAL INTERNATIONAL CORPORATION(Registrant)Date: July 30, 2015By: